Inflation Report February 2015

Output and supply

Chart 3.1 GDP growth slowed in Q4Bank staff projections for near-term output growth(a)

Sources: ONS and Bank calculations.

(a) Chained-volume measures. GDP is at market prices. (b) The magenta diamond shows Bank staff’s central projection for the preliminary estimate of GDP growth for Q4 at the time of the November Report. The green diamond

shows the current staff projection for the preliminary estimate of GDP growth for Q1. The bands on either side of the diamonds show uncertainty around those projections based on one root mean squared error of staff forecasts for quarterly GDP growth made since 2004. As the staff projections are for the preliminary estimates of GDP, they can differ from those used to construct the GDP fans in Section 5, because those fans are based on the MPC’s best collective judgement of the final estimate of GDP.

Chart 3.2 Output growth in 2014 Q4 was driven by the service sectorGDP and sectoral output(a)

(a) Chained-volume measures. GDP is at market prices. Indices of sectoral output are at basic prices. The figures in parentheses show 2011 weights in gross value added.

Chart 3.3 Average hours worked have risen stronglyAverage weekly hours: actual, ‘desired’ and Bank staff’s estimate of the medium-term equilibrium

Sources: Labour Force Survey and Bank calculations. (a) Number of hours that the currently employed report that they would like to work, on average per week calculated from LFS microdata, which have been seasonally

adjusted by Bank staff. Calculation based on Bell, D and Blanchflower, D (2013), ‘How to measure underemployment?’, Peterson Institute for International Economics Working Paper No. 13-7. Data available up to 2014 Q3.

(b) The diamond shows Bank staff’s projection for 2014 Q4, based on official data up to November 2014.

Chart 3.4 Net migration has increased in recent years Net inward migration by nationality(a)

Sources: ONS and Bank calculations. (a) Rolling four-quarter data, as a proportion of population. Data are half-yearly until December 2009 and quarterly thereafter, unless otherwise specified. Quarterly

population figures based on ONS mid-year estimates and have been interpolated by Bank staff.(b) Includes Czech Republic, Estonia, Hungary, Latvia, Lithuania, Poland, Slovakia and Slovenia. (c) Includes Austria, Belgium, Denmark, Finland, France, Germany, Greece, Italy, Luxembourg, Netherlands, Portugal, Republic of Ireland, Spain and Sweden. Excludes the

United Kingdom.(d) EU countries less EU15 and EU8. These are Bulgaria, Croatia, Cyprus, Malta and Romania. (e) Data are half-yearly up to December 2011 and quarterly thereafter.

Chart 3.5 Participation has fallenActual participation rate and Bank staff’s estimate of the medium-term equilibrium participation rate(a)

Sources: Labour Force Survey and Bank calculations.

(a) Percentages of 16+ population. (b) The diamond shows Bank staff’s projection for 2014 Q4, based on official data up to November 2014.

Chart 3.6 Unemployment fell broadly as expectedBank staff’s near-term unemployment rate projection and estimate of medium-term equilibrium unemployment rate(a)

Sources: Labour Force Survey and Bank calculations.

(a) The magenta diamonds show Bank staff’s central projections for the headline unemployment rate for September, October, November and December 2014, at the time of the November Report. The green diamonds show the current staff projections for the headline unemployment rate for December 2014, January, February and March 2015. The bands on either side of the diamonds show uncertainty around those projections based on one root mean squared error of past staff forecasts.

Chart 3.7 Long-term unemployment remains well above its pre-crisis averageUnemployment rates by duration(a)

Sources: Labour Force Survey and Bank calculations.

(a) The number of people unemployed in each duration category, divided by the economically active population. Dashed lines are averages from 2002 to 2007.

Chart 3.8 Companies’ capacity utilisation picked up slightly in Q4Survey indicators of capacity utilisation(a)

Sources: Bank of England, BCC, CBI, CBI/PwC, ONS and Bank calculations. (a) Measures are produced by weighting together surveys from the Bank’s Agents (manufacturing and services), the BCC (non-services and services) and the CBI

(manufacturing, financial services, business/consumer/professional services and distributive trades) using nominal shares in value added. The surveys are adjusted to have a mean of zero and a variance of one over 1999 Q1 to 2007 Q3. The BCC data are non seasonally adjusted.

Chart 3.9 Post-crisis UK productivity experience not unique internationallyHourly labour productivity in selected countries(a)

Sources: Eurostat, ONS, Statistics Norway, Thomson Reuters Datastream and Bank calculations.

(a) Whole-economy unless otherwise stated. (b) US non-farm output per hour.

Chart 3.10 Moderate productivity growth likely in 2014 H2Decomposition of hourly labour productivity(a)

Sources: ONS (including the Labour Force Survey) and Bank calculations.

(a) Whole-economy output per hour. GDP is based on the MPC’s best collective judgement of the final estimate of GDP. Contributions may not sum to total due to seasonal adjustment.

(b) The final observations are based on Bank staff’s projections for 2014 Q4. The error bands around those projections are wide.

Tables

Table 3.A Monitoring the MPC’s key judgements

Table 3.B Employment growth has slowed, employment intentions remain strongEmployment growth, vacancies and survey indicators of employment intentions

Sources: Bank of England, BCC, CBI, CBI/PwC, ONS (including the Labour Force Survey) and Bank calculations.

(a) Unless otherwise stated.(b) Changes relative to the previous quarter in thousands. Figures for employment in 2014 Q4 show data for the three months to November 2014.(c) Other comprises unpaid family workers and those on government-supported training and employment programmes classified as being in employment.(d) Excludes vacancies in agriculture, forestry and fishing. Average is 2001 Q2 to 2007. (e) Measures for the Bank’s Agents (manufacturing and services), the BCC (non-services and services) and the CBI (manufacturing, financial services and

business/consumer/professional services) are weighted together using employee jobs shares from Workforce Jobs. The BCC data are non seasonally adjusted.(f) Net percentage balance of companies expecting their workforce to increase over the next three months.(g) End-quarter observation. The scores refer to companies’ employment intentions over the next six months. The scores are on a scale of -5 to +5.

Table 3.C Most indicators of recruitment difficulties increased during 2014 H2Survey indicators of recruitment difficulties(a)

Sources: Bank of England, BCC, CBI, CBI/PwC, KPMG/REC and Labour Force Survey (LFS).

(a) Measures for the BCC (non-services and services) and the CBI (manufacturing, financial services and business/consumer/professional services) are weighted together using employee jobs shares from Workforce Jobs.

(b) Average for Agents’ scores is 2005 Q1 to 2007. Averages for CBI data are 1998 Q4 to 2007. (c) End-quarter observations on a scale of -5 to +5, with positive scores indicating greater recruitment difficulties in the most recent three months compared with a year

earlier. (d) Percentage of firms reporting recruitment difficulties over the previous three months. Non seasonally adjusted.(e) Balances of respondents expecting skilled or other labour to limit output over the next three months in the manufacturing sector or business over the next twelve months

in the financial, business and consumer services sectors, weighted by shares in employment. Non seasonally adjusted. (f) Indices relating to the recruitment of permanent employees. A balance above 50 indicates rising labour market availability. Quarterly estimates are averages of the

monthly observations.